Trade, Trauma And Technology

Wall Street’s recent skittishness has once again drawn attention to the longest running soap opera in Washington: “As the Deficit Widens.” One of the favorite subplots is: the trade gap as Alexis. Is she as mean and sinister as her image? George Gilder, who I am delighted to have join us as our Comment columnist beginning with January’s issue, takes a different view. During the 1981-82 recession, his book, Wealth and Poverty, was ridiculed in liberal circles for romanticizing concepts such as entrepreneurship, technological innovation and incentive economics. Gilder defied the academic doom-sayers who were convinced that a period of shortages and debilitating inflation inherited from the 1970s would continue. This month marks the fifth anniversary of the nation’s economic expansion. Recent Wall Street trauma notwithstanding, his bullishness was prophetic.

At a Manhattan Institute public policy forum last July, Gilder was asked to comment on the U.S. trade imbalance. “The information age has created the globalization of money,” he said. “This is as important a change as the shift from a barter to a currency economy. Goods no longer have to balance at the border. Manhattan would collapse if it had to pay off its imports in manufactured goods. Korea has had a trade deficit for 30 years. Remember that the U.S. is the only nation that has increased its investment in GNP and lowered inflation. Europe has reduced imports by decree but also has high unemployment. “With global money markets, countries that are growing faster will run trade deficits,” he continues. “Is it a problem? Not as long as the Japanese continue to send us money. Remember the average Japanese buys twice as many American goods than the average American buys goods. The difference is that much of the U.S. goods [they buy] are produced in Japan.”

At the other end of the spectrum of ideas on this point is Intel’s CEO, Andrew S. Grove, whose company and industry is locked in mortal combat with the Japanese electronics giants. In our cover story, Grove puts the best case forward for intervention. A market-share-oriented strategy, arguably underwritten by government funds, can wipe out an entire infrastructure on which future generations of semiconductor (or computer) technology depend. Competition, he argues, is not the issue, since the industry fiercely competes against each other. Nor is “fairness,” the bromide of industrial sour grapes, the issue either. Each-country uses all the resources at its disposal.

Why not the U.S.?

Grove, who came to the U.S. at age 20 as a refugee from the Hungarian revolution, is in many ways an archetypal American success figure. He could barely speak English when he landed, and didn’t know how he could afford to pay for a college engineering education. Luckily for him, CCNY was tuition-free. (The New York Times noted the graduation event in 1960 with: “A Hungarian refugee, who three years ago didn’t know horizontal from vertical-in English-will be graduated…at the head of the engineering class.”

Grove, who went on to collect a Ph.D. from the Univ. of Cal. at Berkeley, has several patents to his credit and has written more than 40 technical papers. He’s best known for being something of a management guru; a reputation, he says, he never thought he would receive. As a teenager in Budapest, his writings for a local newspaper were suddenly no longer accepted when a relative fell out of favor. He came to America in part “to escape the judgmental stuff.”

Grove was determined that arbitrary decisions about one’s suitability would no longer play a role in his life. “I appreciate this country a lot more than native Americans do,” he says. “I enjoy the informality of California. California is a bit one-dimensional, but it’s a tolerant society. Hungary isn’t.”